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Three years ago, the Commonwealth of Massachusetts enacted a far-reaching health reform law that politicians and the media hailed as a model for other states and the federal government. That law has become the blueprint for health system change on a national scale, and its advocates have aggressively marketed some variation of the Massachusetts plan as the reform of choice. Until recently, there has been remarkably little analysis of how the law has worked. This is the seventh in an occasional series of posts that will explore the Massachusetts law with an eye toward helping the press and the public understand the flashpoints as legislation based on the Bay Stateâs experiment winds its way through Congress. The entire series is archived here.
A few weeks ago, the NewsHour with Jim Lehrer featured a segment on the individual mandateâthe centerpiece of any health reform bill likely to pass this year, and something that, until recently, had received scant media attention. So we were pleased to see the NewsHourâs discussion of the mandate with Jonathan Gruberâan MIT policy wonk and member of the Massachusetts Connector board, which oversees the stateâs programâand Michael Cannon, a policy wonk from the libertarian Cato Institute.
Host Gwen Ifill pretty much let the two of them talk. My ears perked up when I heard Gruber say:
What weâve seen is for individuals the cost of buying health insurance has fallen dramatically. Itâs not gone up. Itâs fallen, because by mandating insurance we fix the problem with our insurance market.
I was waiting for Ifill to ask the obvious next questionâwhy were insurance premiums for small businesses climbing higher than Mt. Everest? But she didnât, and switched subjects. Cannon, however, noted that premiums as a whole in Massachusetts were growing 20 to 40 percent faster than premiums in the rest of the country. âHealth insurance premiums are not falling in Massachusetts,â he said. âThe opposite is happening.â But Cannon didnât mention the small business issue either, and that night a major deficiency created by reform went unexplored.
One of the Massachusetts lawâs objectives was insurance market reform, which would merge two formerly separate types of policy marketsâthe individual market, where people bought policies on their own, and the small group market, where small businesses bought policies for their workers. The idea was to expand the so-called risk pool, bringing insurers a better mix of sick and healthy people who would in turn make premiums more affordable and coverage more attractiveâat least for individuals. More attractive individual coverage, a.k.a. lower-priced policies, would help insurers enlarge their market share. âBlue Cross wanted the merged market so they could increase their market,â one business executive told me. âThey were the major driver behind combining the small group and individual markets, which was a huge cost shift onto small employers.â
It was yet another example of the balloon problem in American health care–fix one problem and another pops up somewhere else. Jon Hurst, president of the Retailers Association of Massachusetts, told me: âDespite all this new business insurers and hospitals get, they keep billing us double digit increases.â Rates had been high even before reform, but Hurst added: âYou would have thought rates would come down, but they havenât. We have poured billions into the health care industry in this state and they havenât given us any return.â Businesses with more than ten full-time workers must offer coverage, or they may be assessed $295 per year per employee.
At the beginning of the year, Hurst said, his trade associationâwhich employs five workers and represents about 3000 small businesses across the stateâgot hit with a sixteen percent rate increase from Blue Cross Blue Shield. That meant that Hurstâs group now pays $18,000 per year for family coverage. That was a relative bargain. Other small business owners, Hurst said, were paying $23,000 and $24,000 for similar policies.
To prevent steep premium increases, association employeesâ copayments rose from $5 to $25, amounts that are pretty typical. Other small businesses are also making workers bear the increased costs one way or another. The next option, Hurst explained, is the $1000 deductible. Thereâs a feeling, he explained, that insurers have stacked the deck and are pushing toward a $1000 deductible for small businesses, because that is where they can make more profit. Hurst was frustrated the day I interviewed him.
The good old boy network screwed the consumer. Thatâs what happened in this state. Either they have to fix this or it makes the argument single-payer advocates have been making all along. If they want to prevent that, they have to make sure rates are fair across the board.
The Commonwealth Fund reported last week that while employer-based coverage in the state had increased slightly (it was pretty high to begin with), workers at small businesses were having a tough time. The number of workers at small firms who said they paid premiums at or more than twice the state average increased significantly–8.6 percentage points– from fall 2006 to fall 2008. The percentage of employees at small firms reporting high out-of-pocket spending tripled over the same period. (That means most families spend 10 percent or more of their income on health care costs.) The reason, the studyâs authors said, âreflects increasing health care costs in the state, which predate health reform.â
The former CEO of Harvard Pilgrim Health Care had a different take. This summer on the insurerâs blog, Charlie Baker, now running for governor, explained that premiums for individuals went down by about 25 percent while those for small businesses rose between two and three percent per year. Baker explained why:
Medical expenses of small employers, on average, were much lower than the medical expenses of individuals. Thatâs dueâin large partâto the fact that in Massachusetts, small businesses, their employees and their families had much lower medical expenses than individuals and their families. Itâs as simple as that.
Baker pointed to another crack in the stateâs reform. When the two markets merged, insurance companies could not apply exclusions for pre-existing conditions or waiting periods before coverage took effect for individuals buying on their own unless such restrictions also applied to employees of small businesses. That idea didnât fly; stakeholders argued it would be unfair to small businesses. Baker wrote that everyone had hoped that healthy individuals would buy coverage rather than take the tax penalty, thus bringing in enough premiums from people who werenât sick to offset the expenses of those who were.
Thatâs not happening, Baker reported. Residents are gaming the systemâbuying policies for a short period of time, using services, and then dropping them. This, of course, raises premiums for both individuals and employees of small businesses. When Baker looked further, he found what he called âastonishing results.â Between April 2008 and March 2009, about forty percent of the people who bought Harvard Pilgrimâs individual policies retained coverage for less than five months, running up an average of $2400 per person in monthly medical expenses. Baker said that was âroughly 600 percent higher than what we would have expected.â
What Baker discovered is a cautionary tale for members of Congress hoping to fashion a health reform bill based on the Massachusetts model, and one that needs to be reported in the media. If the press outside the state has focused at all on Massachusetts reform, it has reported the boilerplateâmedical costs are too high, everyone must have insurance, there are small tax penalties for those who donât have it, and studies by policy wonks that say all is well. But theyâve ignored the deeper stories like the one weâve just described.
This summer, Kay Lazar at The Boston Globe found them and reported on efforts to fix the problem that has Jon Hurst so upset. Solutions range from creating a non-profit small business purchasing cooperative to allowing small business owners to reduce their upfront costs by shifting the burden and charging employees higher out-of-pocket prices. That proposal backed by insurers would also cap payments to hospitals and doctors at ten percent above what Medicare pays. Doctors and hospitals are furious at the prospect, Lazar reported. Ahâthat balloon problem again!
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